PNC Bank 2008 Annual Report Download - page 1

James E. Rohr
Chairman and Chief Executive Officer
March 12, 2009
To Our Shareholders:
The PNC Financial Services Group produced solid results in 2008, a year marked by global economic and
market challenges. Equally important, we completed a truly transformational acquisition that doubled our
asset size and significantly enhanced our distribution platform, positioning us for further growth when the
economy begins to recover.
Through the efforts of our dedicated employees, PNC earned net income of $882 million, or $2.46 per
diluted share, for the year and posted some of the strongest profitability ratios among our peers.*
Excluding acquisition-related conforming provisions for credit losses and other integration costs of
$422 million after tax, 2008 net income would have been $1.3 billion or $3.68 per diluted share. We were
able to increase loan loss reserve coverage, strengthen our liquidity and capital, and return a portion of
our earnings to shareholders. These results clearly differentiated us from many large banks.
Even so, the Board of Directors recently made the very difficult but prudent decision to reduce our
quarterly common stock dividend to 10 cents per share effective with the next dividend expected to be
declared in April. Due to rapid economic deterioration, we are taking this proactive step to build capital,
strengthen our balance sheet and serve customers. We expect to increase our dividend when appropriate
after conditions stabilize.
This same economic uncertainty has affected valuations of financial services companies, and we are
disappointed in the absolute recent performance of PNC’s stock price. While our relative performance has
been better than many large banks, we continue to believe the fluctuations in PNC’s common stock price
are not indicative of our sound fundamentals.
PNC is healthy, well capitalized and open for business. By adhering to our business model, we have
consistently made credit available to qualified customers. Since the second quarter of 2007 – when many
believe the credit crunch began – through the end of 2008, we grew average loans by 19 percent, well in
excess of many of our peers. Our efforts continued as we originated approximately $9 billion in loans and
commitments to lend in the fourth quarter.
In this challenging economy, we are pursuing responsible measures to assist homeowners experiencing
financial hardships. We are working with qualified customers to set up new repayment schedules and loan
modifications, and we will enhance this process throughout 2009. Additionally, we see President
Obama’s goal to reduce home foreclosures as a means of providing stability to the national housing
market and reducing this impact on our economy.
PNC completed the acquisition of National City Corporation on December 31, 2008, primarily by issuing
approximately 95 million shares of our common equity, making PNC the fifth largest U.S. bank by
deposits and doubling our assets to $291 billion. This combination provides long-term opportunities to
apply our business model and increase customers and revenue. I am pleased to welcome National City
employees, customers and shareholders to the PNC family.
We issued $7.6 billion of preferred stock and a common stock warrant to the U.S. Department of the
Treasury under the TARP Capital Purchase Program on December 31, 2008. These proceeds enhanced
our already strong regulatory capital, and we plan to redeem the Treasury Department’s investment as
soon as appropriate.
Since PNC’s 2008 performance was below expectations, our Board determined executive compensation
should reflect both this and the current regulatory environment. As a result, total pay to PNC executives
was lower this year.
*PNC’s 2008 peer group consisted of BB&T Corporation, Comerica Inc., Fifth Third Bancorp, KeyCorp, National City Corporation, Regions Financial
Corporation, SunTrust Banks Inc., U.S. Bancorp, Wachovia Corporation and Wells Fargo & Company.
The PNC Financial Services Group
One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707